Creating a business case for purpose … why customers prefer, employees work for, and investors support companies with purpose

April 6, 2020

Purpose defines what the business contributes to the world, or equally, why the world would be a lesser place if the business did not exist.

Purpose creates an enduring cause which the business is willing to fight for. For some this might be an urgent call to action, for others it might be a more personal inspiration. Saving then planet, or achieving your potential, with Nike, or seeking happiness, with Coca Cola.

Tesla exists to “accelerate the world’s transition to sustainable energy”, Starbucks to “inspire the human spirit”, Dove to “help the next generation of women realise their potential”, Microsoft to “empower people to achieve more”, and Swarovski to “add sparkle to people’s everyday lives.”

Purpose creates a richer sense of meaning in your business, inspiring employees to raise their game, to transform and grow themselves and the organisation. It encourages a strategic focus, to rise above the distractions of today, to align on bigger goals and to innovate more radically. Productivity and performance typically follow.

Consumers seek purpose-driven companies

Consumers prefer them:

Cone/Porter Novelli found 66% people would switch to a purpose-driven brand, and to 91% of millennials. Also 78 % of consumers would tell others to buy, and 73% would defend them

Edelman Earned Brand says 50% of consumers across 14 major markets, are belief-driven buyers, and they skew younger, with higher percentages among Millennials (60%) and Gen-Z (53%).

Fuse Marketing, says 85% of Gen-Z are more likely to trust a brand, 84% more likely to buy

Sustainable Brands and Harris Poll found 80% of people say they are loyal to businesses that help them achieve “the Good Life” (defined by four major components: balance and simplicity, meaningful connections, money and status, and personal achievement) and 76% believe making a difference in the lives of others is necessary for living the Good Life.

Accenture found 53% of people disappointed with a brand’s words or actions on a social issue complain about it, with 47% walking away in frustration, with 17% not coming back.

Wall Street Journalfound that “Almost 60% of Americans said last year that they would “choose, switch, avoid or boycott a brand based on its stand on societal issues,” compared to just 47% in 2017.

2018 Edelman Earned Brand study found that “nearly two-thirds (64 percent) of consumers around the world will buy or boycott a brand solely because of its position on a social or political issue.”

Consumers pay more:

Nielsen found that 2 in 3 consumers will pay more for products and services from brands that are committed to making a positive social impact.

IBM research and National Retail Federation found 70% of purpose-driven shoppers pay an added premium of 35% more for sustainable purchases, such as recycled or eco-friendly goods.” (based on 19,000 consumers in 28 countries)

About purpose:

Harvard Business Review found that purpose helps “redefine the playing field” in a way that opened up new territories for growth, and “reshape their value proposition” in a way that broadened their mission.

Fortune survey by New Paradigm Strategy Group found that nearly 72% of the adults surveyed agree that public companies should be mission-driven, as well as focus on their shareholders and customers. In that same poll, 64% of respondents say that a company’s primary purpose should include ‘making the world better’.

Edelman Trust Barometer reports that “80% of consumers agree that a business must play a role in addressing societal issues; they want a company to take actions which increase profits, improve social conditions, and make the world a better place.”

Deloitte’s Retail Trends 2020 report, which outlines the top six retail trends for the coming year, found that an “authentic purpose is now as important as digital to the next generation of customers.”

Harvard EY Beacon Institute survey found that “companies with a strong sense of purpose are able to transform and innovate better.” Executives with purpose have “greater ability to drive successful innovation and transformational change.”

53% said their organization is successful with innovation and transformation efforts, while less than one-fifth (19%) report success at companies who have not thought about purpose.

Also, when Fortune-500 companies were ranked by the number of women directors on their boards, those in the highest quartile reported a 42% greater return on sales, 53% higher return on equity

And growth

Kantar Purpose 2020 study demonstrates that over a period of 12 years, the brands with high perceived positive impact have a brand value growth of 175%, versus 86% for medium positive impact and 70% for low positive impact.

Employees seek purpose-driven companies

Attracting talent:

Inc, found that millennials, who will make up 75% of the workforce by 2025, are looking for socially responsible employers.

Cone Communications Millennial Employee Study found that 64% of millennials won’t take a job if their employee doesn’t have a strong CSR policy, and 83% would be more loyal to a company that helps them contribute to social and environmental issues

WeSpire found that Gen-Z is ‘The first generation to prioritize purpose over salary.They read Mission Statements and Values documents to select where they work and want their employer’s values to match their values. They expect consistency and authenticity and will call you out, often publicly, if they don’t see it. They will leave companies they believe are hiding or putting too much spin on bad news, ignoring their negative environmental or social impacts, or that have toxic workplace cultures.’

Peakon says Gen-Z is “the only generation to reference social concerns within employee comments. Raised in a time when the effects of climate change are making weekly headlines, it shows that they care deeply about the world around them.”

Employee performance

Gallup’s Employee Engagement Poll found that only 34% of American workers were “actively engaged” (defined as “those who are involved in, enthusiastic about and committed to their work and workplace”)

Compared with business units in the bottom quartile, those in the top quartile of engagement realize substantially better customer engagement, higher productivity, better retention, fewer accidents, and 21% higher profitability.

Fast Company found that ‘most millennials would take a pay cut to work at an environmentally responsible company.’

Benevity’s Engagement Study, found that turnover dropped by an average of 57% in the employee group most deeply connected to their companies’ giving and volunteering efforts.

Studies show that the total cost of losing an employee can range from tens of thousands of dollars to 1.5–2 times an employee’s annual salary, which for U.S. companies totals more than $160 billion a year. This shows that giving employees a sense of meaning in their work has tangible and hugely impactful benefits.

Investors seek purpose driven companies

A 20-year study by the Torrey Project explodes the myth that an ethical, stakeholder-driven approach to business cannot lead to shareholder returns by examining the long-term historical performance of different sets of companies including the S&P 500, Jim Collins’ “Good to Great” companies, Raj Sisodia’s stakeholder-focused “Firms of Endearment” and Ethisphere’s 2019 “Most Ethical Companies.”

After comparing these 4 sets of companies’ financial performance on the NASDAQ and NYSE over the past 20 years, they found that while Ethical Companies do enjoy a higher level of stock price growth (50% higher than that of the S&P 500 over the same period), stakeholder-focused companies (Sisodia’s Firms of Endearment) had the highest growth of all in stock price (100% higher than that of the S&P 500 over the same period).

This data has two clear conclusions. (1) Ethical business behavior correlates with high financial returns. (2) Companies who take things one step further and adopt a stakeholder-focused model (that explicitly serves employees, customers, suppliers, business partners, investors, local communities, the environment, and society) have historically shown even higher returns than standard ethical companies.

Current Investors:

According to Morningstar, “net flows into sustainable funds this year are on track to triple their 2018 total, driven by ESG (environmental, social and governance) factors as well as the desire to make a social impact.”

Bank of America Merrill Lynch report predicted a “tsunami” of capital flowing to “good” stocks, fueled by high levels of interest among women, millennials, and wealthy individuals. They say over the next two decades, $20 trillion in assets will flow into sustainable funds and strategies, nearly equaling the market value of the S&P 500 today (some $24.7 trillion).

Future investors:

Coldwell Banker, says the “Great Wealth Transfer” will see an estimated $68 trillion passed down from boomers over the next 30 years, and by 2030, Millennials will hold five times as much wealth as they have today.

DeVere Group, survey of Millennial investors found that some 77% of them say that environmental, social and governance concerns are their top priority when considering investment opportunities.

It found that ESG concerns topped traditional factors such as anticipated returns (cited as most important by 10% of those polled), past performance (7%), risk tolerance (4%) and tactical allocation (2%) when making investment decisions.

Swell Investing’s ‘Money Meets Morals’ survey found that 84% of Gen-Z investors are either already invested in socially responsible or impact investments or plan to invest this way in the future. Nearly one in three Gen-Z investors (31%) said they would be willing to allocate 50% or more of their investment portfolio to socially responsible or impact investments. One in four millennial investors would do the same.